Market Overview

HMN Financial, Inc. Announces Fourth Quarter Results

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Fourth Quarter Highlights

  • Net income of $0.4 million, down $1.3 million from $1.7 million for fourth quarter of 2016
  • Diluted earnings per share of $0.08, down $0.27 from $0.35 for fourth quarter of 2016
  • Income tax expense of $1.6 million, up $0.6 million from $1.0 million in the fourth quarter of 2016
  • Interest income yield enhancements decreased $0.6 million in fourth quarter of 2017 compared to fourth quarter of 2016

Annual Highlights

  • Net income of $4.4 million, down $2.0 million from $6.4 million for 2016
  • Diluted earnings per share of $0.90, down $0.44 from $1.34 for 2016
  • Income tax expense of $4.4 million, up $0.3 million from $4.1 million in 2016  
  • Interest income yield enhancements decreased $2.1 million in 2017 compared to 2016
  • Total assets of $723 million, up $41 million from $682 million at December 31, 2016
Net Income Summary   Three Months Ended     Year Ended  
    December 31,     December 31,  
(Dollars in thousands, except per share amounts)     2017   2016     2017 2016  
Net income $ 387 1,684   $ 4,404 6,350  
Diluted earnings per share    0.08 0.35     0.90 1.34  
Return on average assets (annualized)   0.21 % 0.99 %   0.63 % 0.96 %
Return on average equity (annualized)   1.88 % 8.93 %   5.52 % 8.71 %
Book value per share $ 17.97 16.91   $ 17.97 16.91  
                 

ROCHESTER, Minn., Jan. 29, 2018 (GLOBE NEWSWIRE) -- HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $723 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $0.4 million for the fourth quarter of 2017, a decrease of $1.3 million compared to net income of $1.7 million for the fourth quarter of 2016.  Diluted earnings per share for the fourth quarter of 2017 was $0.08, a decrease of $0.27 from the diluted earnings per share of $0.35 for the fourth quarter of 2016. The decrease in net income for the fourth quarter of 2017 is due primarily to a $0.6 million increase in income tax expense.  The increase is due primarily to the $1.1 million decrease in the Company's net deferred tax asset as result of the reduction in the corporate federal tax rate in connection with the enactment of the Tax Cuts and Jobs Act on December 22, 2017.  Net income also decreased because of a $0.2 million decrease in the gain on sales of loans due to a decrease in mortgage loan activity.  The loan loss provision also increased $0.5 million due to increased reserves established on certain commercial loans between the periods.

President's Statement            

"The decrease in the corporate federal tax rate had a negative effect on net income in the fourth quarter of 2017 due to the write down of our deferred tax asset," said Bradley Krehbiel, President and Chief Executive Officer of HMN. "Even though the corporate income tax rate change negatively impacted the fourth quarter results, we look forward to the positive impact of the lower federal tax rate on our earnings in future periods." 

Fourth Quarter Results

Net Interest Income

Net interest income was $6.3 million for the fourth quarter of 2017, the same as for the fourth quarter of 2016.  Interest income was $6.8 million for the fourth quarter of 2017, an increase of $0.1 million, or 0.8%, from $6.7 million for the same period in 2016.  Interest income increased $0.6 million because of an increase in the average interest-earning assets and a change in the composition of the average interest-earning assets held, which resulted in a 9 basis point increase in the average yields earned between the periods.  While the average interest-earning assets increased $45.8 million between the periods, the average interest-earning assets held in higher yielding loans increased $39.4 million and the amount of average interest-earning assets held in lower yielding cash and investments increased $6.4 million between the periods. The increase in the average outstanding loans between the periods was primarily the result of an increase in the commercial loan portfolio which occurred because of an increase in loan originations and a reduction in loan payoffs between the periods.  The increase in interest income as a result of these items was entirely offset by a decrease in interest income as a result of recognizing a lower amount of yield enhancements between the periods.  Interest income decreased $0.6 million due to a decrease in the amount of yield enhancements recognized from loan prepayment penalties, yield adjustments on purchased loans, and the interest payments received on non-accruing and previously charged off commercial real estate loans.  This resulted in a 35 basis point decrease in the average yield between the periods.  It is anticipated that the yield enhancements relating to these items will be lower in subsequent periods as the pool of non-accruing and purchased loans continues to decline.  The average yield earned on interest-earning assets was 3.89% for the fourth quarter of 2017, a decrease of 26 basis points from 4.15% for the fourth quarter of 2016.  The decrease in the average yield earned on interest-earning assets is primarily related to the decrease in yield adjustments recognized between the periods on previously charged off commercial real estate loans.

Interest expense was $0.4 million for the fourth quarter of 2017, the same as for the fourth quarter of 2016. The average interest rate paid on non-interest and interest-bearing liabilities was 0.27% for the fourth quarter of 2017, a decrease of 1 basis point from the fourth quarter of 2016.  The average non-interest and interest-bearing liabilities increased $37.8 million between the periods, the average amount held in lower rate checking, savings, and money market accounts increased $17.3 million, the average amount held in higher rate premium money market accounts increased $21.4 million, and the average amount held in higher rate borrowings and certificates of deposit decreased $0.5 million between the periods.  Net interest margin (net interest income divided by average interest-earning assets) for the fourth quarter of 2017 was 3.64%, a decrease of 25 basis points, compared to 3.89% for the fourth quarter of 2016.  The decrease in the net interest margin is primarily related to the decrease in yield adjustments recognized between the periods on previously charged off commercial real estate loans.

A summary of the Company's net interest margin for the three month periods ended December 31, 2017 and 2016 is as follows:

    For the three-month period ended  
    December 31, 2017     December 31, 2016  
(Dollars in thousands)   Average
Outstanding
Balance
  Interest
Earned/
Paid
  Yield/
Rate
    Average
Outstanding
Balance
  Interest
Earned/
Paid
  Yield/
Rate
 
Interest-earning assets:                            
  Securities available for sale $ 76,154   310   1.62 % $ 76,912   281   1.45 %
  Loans held for sale   2,030   25   4.89     2,783   27   3.86  
  Mortgage loans, net   114,808   1,182   4.08     108,133   1,072   3.94  
  Commercial loans, net   393,823   4,257   4.29     360,355   4,406   4.86  
  Consumer loans, net   73,964   913   4.90     73,969   900   4.84  
  Cash equivalents   28,045   76   1.08     20,908   23   0.44  
  Federal Home Loan Bank stock   818   4   1.94     806   2   0.86  
Total interest-earning assets $ 689,642   6,767   3.89   $ 643,866   6,711   4.15  
                             
Interest-bearing liabilities:                            
  NOW accounts $ 86,327   11   0.05   $ 89,864   14   0.06  
  Savings accounts   75,335   15   0.08     72,896   15   0.08  
  Money market accounts   192,399   171   0.35     170,475   99   0.23  
  Certificates   110,884   238   0.85     101,889   147   0.57  
  Advances and other borrowings   0   0   0.00     9,511   145   6.05  
Total interest-bearing liabilities $ 464,945           $ 444,635
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